Payment on account and matching VAT codes

 

Hi, I buy safety wear from a supplier and after I have made the purchase order, I phone the supplier and pay over the phone.I don't want a credit account with this supplier, I like it this way. I record this transaction as a payment on account into the supplier's account and when I do, I am presented with the question as to which VAT rate to apply. I then choose T1 - 20% When the goods arrive, the next day, the supplier gices me the invoice and the debit card chit. I then process the invoice, and this is where things get sticky. Gloves are charged at 20% VAT (T1), but Safety Boots are Exempt ( I use T9).If I use T9 for the boots, then post the invoice, I run into problems when I try to match the payment with the invoice. Sage tells me that the tax codes don't match so I can't continue. I've made my own workaround, that is to give the boots a T1 code and overtype the VAT value generated with zeros, but I'm not sure what, if any, effect this might have for VAT returns. Am I doing something wrong, is there a setting somewhere or can anyone suggest an alternative workaround? Thanks in advance.  PS. Sage version =Sage Accounts Professional 2010Version 16.00.17.0154 

Comments

No Paragraphs !

D_Smith | | Permalink

Sorry to any readers - I cut and paste this into the box, there were paragraphs then, but they seem to have been stripped away.

Workaround

johndon68 | | Permalink

The workaround is generally to enter the transactions as normal with the correct tax codes.  Prior to allocating, go to Error Corrections and change just the tax code on one of the transactions so they both match - make the allocation then go back in to Error Corrections and change the tax code back again.

John

Witch-Queen's picture

Payment on account and matching VAT codes

Witch-Queen | | Permalink

Firstly you should not be using T9 as this is only for non trading transactions like payment to HMRC and the value of the net will not appear on your VAT return - you should be using T0 for non VATable items

This is only happening because you are on VAT cash accounting scheme.

I suggest the best way round this is not to post the payment until after you have posted the invoice. When you match the payment against the invoice only the amount of VAT actually invoiced will posted as that part of the payment

Sorry if this is a bit confused as had to type it quick as a client just arrived

Sage cannot deal with it correctly ...

JC | | Permalink

A 'workaround' should not really be necessary because to my certain knowledge Sage has known about this issue for 5+ years and has chosen to do nothing about the matter; whilst at the same time continuing to release new versions of the program and consistently ignoring this fix

Sage should allow the 'on account' amount to be entered without any allocation to VAT because as you quite rightly say at the time a purchase order is raised you do not know the VAT, which only becomes crystalised at the point when the goods are sold

This is an absolute Sage 'howler' but the only way out of your predicament are the previous postings

The knock on effect is that with cash accounting in this situation the VAT reports will show incorrect VAT (against the POA) because in order to enter the transaction Sage has forced the user to enter a VAT rate which could be the wrong one

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_PublicNoticesAndInfoSheets&propertyType=document&columns=1&id=HMCE_CL_000348

5.1 Deposits

The rules about deposits are in Notice 700 The VAT Guide. If you receive or pay a deposit which serves as an advance payment, you must account for it in accordance with the rules in paragraphs 4.4 and 4.5.

Unfortunately nowhere does HMRC address how you pay VAT when the trader has taken a deposit and does no know the associated VAT rate for the goods. Although having spoken to HMRC Policy Unit they have expressed an opinion that clearly you cannot pay the VAT until you know what it is

Interesting anomaly - but whichever way it goes Sage should not force a VAT rate to be entered when it is not known

Old Greying Accountant's picture

I have a similar situation ...

Old Greying Acc... | | Permalink

... with CIS.

I post the invoice in full, and then a credit for the CIS, but unless they are both the same T code SAGE will not let me match them to the payment, so when you run the VAT return you have to manually adjust the net sales otherwise they are understated by the CIS credit, where really the CIS credit should be a T9.

DerekChaplin's picture

Your work around is good

DerekChaplin | | Permalink

Personally I would T1 the payment, then use T1 for the invoice. Zero the VAT on the boots manually, then remember to reduce the VAT on the payment (via maintenance) to match the invoice - otherwise the VAT claimed on the payment will exceed the VAT on the invoice and HMRC will not be happy.

 

Old Greying Accountant - the way I deal with CIS is to setup seperate bank accounts called CIS on receipts and CIS on payments. Then if you pay a supplier you can pay the full amount from the main bank account and do a bank transfer to adjust the payment via the CIS bank account. this way, the VAT is fine (calculate on the full invoice) and the amount paid is the full amount, whilst the credit for the CIS tax is held seperately in a dummy bank account.

then, dependant upon whether the client is a company or soletrade/partnership, the treatment of the bank account differs at the year/month end. Companies can offset this against the PAYE/NI monthly - the bank payment from the main account, plus a transfer from the CIS account can then clear the PAYE/NI liability each month. Works a dream!

With a soletrader/partnership the CIS deducted from income is set against personal tax, and there is a lovely record of all movements in this account which will help the accountant no end!

Sometimes takes a bit of explaining to clients, but once they understand, life becomes much simpler for everyone.

completebookkeeping's picture

Cash Accounting

completebookkeeping | | Permalink

Not really understanding - is there such a long delay from purchasing to receiving the actual invoice - wouldnt it be easier just to wait a week for the invoice and enter first. Atleast that way you know your Tax codes cannot be cross questioned with VAT office.

completebookkeeping's picture

Cash Accounting

completebookkeeping | | Permalink

Not really understanding - is there such a long delay from purchasing to receiving the actual invoice - wouldnt it be easier just to wait a week for the invoice and enter first. Atleast that way you know your Tax codes cannot be cross questioned with VAT office.  Tax code T2 for Exempt - T9 isnt actually declaring on VAT return at all.

Recording the transaction.

D_Smith | | Permalink

I guess I could wait until the invoice arrives but I always prefer to record a payment as the transaction occurs - in this way there is a record on Sage that a payment has been made.

I have so many transactions daily that I would probably forget whether I had paid or not :-)

completebookkeeping's picture

Forgetting Payment

completebookkeeping | | Permalink

That's where keeping up to date with the bank reconcile would show differences - this should be completed prior to VAT return to ensure nothing is missed as part of bookkeeping procedure.

Work Around the Deposit & VAT Problem

sagetrain | | Permalink

I used sage  with a printer where they take a deposit up front to cover the postage and then raise the invoice later.  This will be mixed VAT codes.

My rule to cope with the deposits and avoid confusion with the mixed VAT codes was to create a nominal Suspense Account - Customer Deposits 9997

 

Bank

Receipt

Input the customer's deposit to 9997 Suspense Account- Customer Deposits   using T9  and the narrative "customer name???" unallocated deposit using the original date banked

 

Once the invoice is raised at a later date and posted

Bank

Customer Receipt

Next input the customer's deposit  against the correct customer invoice using the original date banked

 

Bank

Payment

Now using the original date banked now input the customers deposit against

9997 Suspense Account - Customer Deposits using T9 and the narrative "customer's name???" Allocated Deposit.

 

Now go the Company / Nominal Module and check the activity on 9997 Suspense Account - Customer Deposits you should be able to see both entries one payment and one receipt both T9

 

Also check that your Bank Reconciliation

There should be a matching Payment and Receipt against 9997Suspense Account - Customer Deposits  (zeroing out the balance) and also a Customer Receipt.

Hope all is clear

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